American Express (NYSE: AXP), whose stock is trading at 5-year lows, today tried to reassure Wall Street about its financial situation. It said that this year it has increased its surplus capital above normal historical levels by halting its share buybacks, which enabled it to retain a larger portion of the capital and funds generated from ongoing business operations. Its 2008 funding plan targets about $27 billion of term debt sales, which includes off-balance sheet securitizations of credit card loans for the year. Through September 30, it has raised approximately $23 billion or 85% of this total.
The 2008 $27 billion funding target is $5 billionlower than what was reported last quarter to reflect slower expectedgrowth in the company’s credit card loans outstanding and reductions innet operating cash needs. Amex also says it has satisfied allmaturing obligations and funded its growth by accessing a variety ofsources, including long- and short-term debt, asset securitizations andbank deposits. It is also paying higher spreads than during theprior several years. The company gave a table of upcoming maturities of long-term debt anddebt issued in connection with off-balance sheet securitizations:
QUARTER ENDING LONG-TERM DEBT OFF-BALANCE SHEET TOTAL MATURITIES
December 31, 2008 $3.6 billion — $3.6 billion
March 31, 2009 $2.3 billion $1.5 billion $3.8 billion
June 30, 2009 $7.2 billion $0.6 billion $7.8 billion
September 30, 2009 $2.9 billion $2.7 billion $5.6 billion
December 31, 2009 $2.9 billion — $2.9 billion
Amex is also listing its various sources of cash including:
- cash and cash equivalents of $12 billion at September 30, 2008 forliquidity purposes, which excludes cash and equivalents on hand to fundday-to-day operations,
- liquidity investment portfolio of U.S. Treasury and government agency securities of $5 billion,
- an undrawn committed facility to purchase securitized credit card receivables of $5 billion, and
- undrawn committed bank credit facilities of $9 billion.
Amex’s banking operations canaccess to the Federal Reserve Bank discount window. The FederalReserve has indicated that credit card receivables are a form of qualifying collateral for secured borrowings made through the discount window or its Term Auction Facility (TAF) program.
The Company has approximately $45 billion in U.S. credit card loans andcharge card receivables that could be sold through itsexisting securitization trusts, its undrawn committed securitizationfacility referred to above or pledged in return for secured borrowingsto provide further liquidity.
American Express said it believes that it would have the liquidity tosatisfy all maturing obligations and fund normal business operationsfor at least a 12-month period if access to the secured and unsecuredfixed income capital markets were interrupted.
Shares are down almost 10% today at levels just under $28.00. The DJIAcomponent was briefly trading above $40.00 towards the end ofSeptember. Its 52-week trading range had been $30.50 to $63.63.
With the DJIA down some 600 points, the company’s adequate capital and lack of any massive scares inside the company is still falling on deaf ears. Fear and paralysis are currently winning out over trying to analyze the facts disclosed by companies.
Jon C. Ogg
October 6, 2008